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Is Bank OZK (NASDAQ:OZK) Potentially Undervalued?

Simply Wall St

Bank OZK (NASDAQ:OZK), operating in the financial services industry based in United States, led the NASDAQGS gainers with a relatively large price hike in the past couple of weeks. With many analysts covering the mid-cap stock, we may expect any price-sensitive announcements have already been factored into the stock’s share price. However, what if the stock is still a bargain? Let’s examine Bank OZK’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

View our latest analysis for Bank OZK

What's the opportunity in Bank OZK?

According to my relative valuation model, the stock seems to be currently fairly priced. In this instance, I’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that Bank OZK’s ratio of 8.95x is trading slightly below its industry peers’ ratio of 12.71x, which means if you buy Bank OZK today, you’d be paying a fair price for it. And if you believe that Bank OZK should be trading at this level in the long run, then there’s not much of an upside to gain from mispricing. So, is there another chance to buy low in the future? Given that Bank OZK’s share is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) this could mean the price can sink lower, giving us an opportunity to buy later on. This is based on its high beta, which is a good indicator for share price volatility.

Can we expect growth from Bank OZK?

NasdaqGS:OZK Past and Future Earnings, December 10th 2019

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. However, with a negative profit growth of -10% expected over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for Bank OZK. This certainty tips the risk-return scale towards higher risk.

What this means for you:

Are you a shareholder? Currently, OZK appears to be trading around its fair value, but given the uncertainty from negative returns in the future, this could be the right time to de-risk your portfolio. Is your current exposure to the stock beneficial for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on OZK, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping tabs on OZK for a while, now may not be the most advantageous time to buy, given it is trading around its fair value. The price seems to be trading at fair value, which means there’s less benefit from mispricing. In addition to this, the negative growth outlook increases the risk of holding the stock. However, there are also other important factors we haven’t considered today, which can help gel your views on OZK should the price fluctuate below its true value.

Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on Bank OZK. You can find everything you need to know about Bank OZK in the latest infographic research report. If you are no longer interested in Bank OZK, you can use our free platform to see my list of over 50 other stocks with a high growth potential.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.